Pandora, the Internet music service, reported a net loss of $1.7 million (-$0.01 EPS) in its earnings report released after today’s closing bell. The slight net loss is in contrast to quarterly earnings from Q3 FY13, where the company reported profits of $2.05 ($0.01 EPS). Despite the slight loss, Pandora’s earnings report included some positive news regarding its revenue stream. Mobile advertising revenue crossed the $100 million mark for the first time, an increase of 58% year-over-year. Total revenue was $180.4 million, an increase of 50% year-over-year. A 20% boost in active users to a total of 70.9 million helped drive the large increases in revenue.
While Pandora’s mobile advertising revenue growth is impressive, there remains cause for concern. At $104.9 million, mobile advertising alone accounts for a staggering 58% of total revenue. Add in an extra $39.4 million in non-mobile advertising, and you get a total of $144.3 million in advertising revenue, leaving just $37.2 million for subscription and other revenue. Earlier this year the company had been pushing for users to sign up for subscriptions as their primary method for revenue growth, even going so far as to cap listening time to 40 hours. However, late this summer Pandora reversed the cap, and the company currently seems fine with plastering their app with ads to pay the bills.
This strategy may be shortsighted, though, as Pandora has been up against fierce competition lately. Spotify, arguably Pandora’s biggest competitor, just announced that they have raised another $250 million in funding. This latest round of funding will help Spotify expand in the United States, where despite having a mainstream presence still trails Pandora in active users. Spotify’s rise to fame occurred in Europe, though its big name executives – most notably Sean Parker of Napster and Facebook fame – are taking direct aim at Pandora here in the US. Spotify’s revenue has increased substantially the past year, yet it still trails Pandora significantly in total revenue and active users.
Of course, there’s the big elephant in the room – Apple’s own internet music service, iTunesRadio. Over the next year we may finally see a limit to the number of streaming music services consumers are capable of supporting, especially when they all have similar music libraries.
